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their benefits exceeds $44,000 by at least $32,259, they must
include in income 85 percent of the benefits. See sec. 86(a),
(c). Thus, respondent is correct in his determination that
petitioners must include in income 85 percent of the Social
Security disability benefits, or $9,619.
Petitioners’ primary argument is that the payments should
not be included in income because they are disability payments.
As noted above, however, Social Security disability benefits are
treated in the same manner as other Social Security benefits and
must be included in income to the extent required under section
86. See Thomas v. Commissioner, supra.
A portion of the benefits was paid directly to Ms. Dela
Cruz’s lawyer. As a general rule, income is taxed to the person
earning it even if the right to receive the income is
contractually assigned to another person prior to its being
earned. Lucas v. Earl, 281 U.S. 111 (1930); Kenseth v.
Commissioner, 114 T.C. 399 (2000), affd. 259 F.3d 881 (7th Cir.
2001); Banks v. Commissioner, T.C. Memo. 2001-48; see also S.
Rept. 98-23, 26 (1983), 1983-2 C.B. 328 (stating that the total
amount of Social Security benefits received by a taxpayer is not
to be reduced by attorney’s fees). Under this principle, the
Social Security benefits paid to Ms. Dela Cruz are includable in
income despite the fact that her lawyer was paid directly by the
Social Security Administration.
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